Netflix takes blogs, YouTube to spread news

MattJarzemsky

NEW YORK (MarketWatch) -- Netflix Inc.
NFLX, -0.50%
again deviated from the standard corporate public relations playbook in announcing further details about the split up of its DVD-by-mail and video-streaming businesses.

The Los Gatos, Calif., video rental company blogged, uploaded a YouTube clip and e-mailed customers overnight to unveil the news that the DVD business would be renamed "Qwikster" and to explain Netflix's rationale for the split. It was the latest example of the nontraditional approach frequently taken by the company and its chief executive, Reed Hastings, in distributing material news.

"That was all Reed--he wanted to speak directly to customers," Netflix spokesman Steve Swasey said. "The beauty of the Internet is you can do that. This is a direct message."

In a 1,100-word blog post, Hastings wrote that he "messed up" by not explaining the separation of the businesses earlier. He said the move was behind a recent pricing change that Netflix expects to lead to a loss of domestic customers in the third quarter. As of mid-afternoon Monday, more than 13,000 people had commented on the blog post.

Netflix also e-mailed its members a letter and linked to a YouTube clip of Hastings and another executive discussing the change.

Unconventional methods of corporate disclosure aren't bad, as long as the goal is to reach the widest possible audience, said Charles Elson, chair of the University of Delaware's John L. Weinberg Center for Corporate Governance. "There's nothing wrong with alternative outlets, but the key has to be that you distribute information to your investors," he said.

However, Netflix's penchant for bypassing traditional methods of corporate communications haven't always endeared the company to analysts.

"[The announcement Sunday] seems like material news, and you generally would have to have that material news disclosed broadly and simultaneously," Janney Capital Markets analyst Tony Wible said. "I don't know if a blog counts. Their communication with the Street and with customers will eventually work against them as the business starts to become less stable."

Netflix's other unconventional reporting techniques include distributing press releases that serve only to direct readers to the news on its website; using lengthy missives to report its quarterly results; and preventing analysts from asking questions on its quarterly earnings call. Instead, the company allows them to e-mail their inquiries.

"I know that they have skipped some of the more challenging questions that I've sent them," Janney's Wible said.

One anticipated change to Netflix's reporting methods--the company plans to stop reporting its churn, or customer turnover, in its financial reports--has gotten the attention of the Securities and Exchange Commission. The regulator said it believes the metric would be useful to investors, according to a July Netflix filing to the SEC.

Netflix said in the filing that churn "does not accurately reflect consumer acceptance of our service" and noted that subscription services such as Comcast Corp. (CMCSA) and Time Warner Cable (TWC) don't report the metric.

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